Medical Properties Trust Inc (MPW) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2009 Medical Properties Trust, Incorporated Earnings Conference Call. My name is Francine, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Mr. Charles Lambert. Please proceed, sir.

Thank you, operator, and good morning, everyone. Welcome to the Medical Properties Trust Conference Call to discuss our first quarter 2009 financial results. With us today from senior management are Edward K. Aldag, Junior, Chairman, President and Chief Executive Officer, and Steven Hamner, Executive Vice President and Chief Financial Officer.

A press release was distributed this morning, May 7th, and was furnished on Form 8-K with the SEC. If you did not receive a copy, it is available on our website at www.medicalpropertiestrust.com in the Investor Relations section. Additionally, we are hosting a live webcast of today's call, which you can access in the same section.

During the course of this call, we will make projections and certain other statements that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks and uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed in or underlying such forward-looking statements.

We refer you to the Company's reports filed with the Securities and Exchange Commission for a discussion of these factors that could cause the Company's actual results or future events to differ materially from those expressed in this call. The information we provide today is as of this date only, and except as required by the federal security laws, the Company does not undertake a duty to update any such information.

In addition, during the course of the conference call, we will describe certain non-GAAP financial measures, which should be considered in addition to and not in lieu of comparable GAAP financial measures. Please note that in our press release, Medical Properties Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Regulation G requirements. You can also refer to our website at www.medicalpropertiestrust.com for the most directly comparable financial measures and related reconciliation.

I would like to turn the call over now to our Chief Executive Officer, Ed Aldag.

Thank you, Charles. Good morning, everyone, and thank you for your interest in Medical Properties Trust. Before I turn the call over to Steve Hamner, our Chief Financial Officer, I'd like to walk you through some highlights of our first quarter operating performance. Our first quarter performance was solid on all fronts, including a year-over-year revenue increase of approximately 39% and FFO and AFFO increases of 14.3% and 11.4% respectively. Our AFFO was on the high end of our forecasted range at $0.23 per share.

Before going further, I'd like to address the issue of liquidity, which is on everyone's mind right now for the entire REIT sector. In the early part of January, we made the decision to raise equity during the very short window of opportunity that existed then. We were one of the very first REITs to begin the so-called recapitalization process. Our offering was very well received and provided us a good cushion of liquidity, generating net proceeds of $67 million.

Moving forward, we will continue to explore measures to preserve capital and to further strengthen our financial position in order to address our 2011 and beyond debt maturities and position the Company for future growth opportunities. These measures may include pertinent asset sales as well as secured and unsecured financing alternatives among other options. We are monitoring market conditions daily and are taking all of this into account as we continue to have discussions with our lenders and weigh our options carefully.

Having said that, we have already made significant progress and are well positioned to continue to weather the current macroeconomic conditions. Given our discussions and what we have already accomplished, we believe we are in a very good situation with respect to these options that I've mentioned.

Turning to our portfolio, as you know, our primary focus is on acute care, rehabilitation and long-term acute care hospitals, and as we predicted more than four years ago and have continued to report on quarter to quarter, contrary to some observer's predictions of a decline due to the worldwide economic recession, our hospital portfolio has continued to perform well in this current economy. In addition, as we now know, many of the country's largest hospital operators have also surprised analysts by reporting better than predicted operating results, all of this during one of the worst economic climates in this country has seen in years, plus a very light flu season compared with 2008.

Specific to our portfolio, our acute care hospital sector remains strong and essentially unchanged with EBITDA release coverage in the first quarter of 2009 of 5.36 times compared with 5.37 times for our first quarter 2008. Again, this was despite the fact that we have thus far experienced a very light flu season in 2009 compared with 2008.

However, we saw a significant sequential increase in the first quarter of 2009 compared with the fourth quarter of 2008, rising from 4.3 times to 5.36 times. Our LTACHs saw a significant improvement from first quarter 2008 to first quarter 2009, going from 1.61 times to 2.42 times. This was also true sequentially, going from 2.11 in the fourth quarter of 2008 to 2.42 times in the first quarter of 2009.

In our rehab hospital sector, we have six rehab hospitals. Five of these six are not required to report their quarterly results to us until after our earnings call. The one that we have current information on was flat from the fourth quarter 2008 to first quarter 2009. However, to provide some additional insight and comparing the third quarter 2008 to the fourth quarter 2008 for the other five rehab hospitals, the EBITDA coverage went up significantly from 2 times to 3.4 times.

Regarding the overall hospital environment, as some of you now know, CMS issued a press release this past Friday in which they announced proposals for payment rate changes for inpatient stays in acute care and long-term acute care hospitals for 2010. The proposals were less than they have been in recent years, reflecting the decline in inflation.

In the same press release, CMS issued for comments potential decreases to payments in 2011 and 2012 that may come about to address changes in hospitals' coding practices in the past. They did not address other potential changes that may negate these proposed decreases and, of course at this time, they are only broad proposals for comment by the public.

However, even in the -- even though these are just proposals, we wanted to address any concerns and look at what the worst-case scenario would be. So, we assumed that our operators made no adjustments to their operating practices and that there were no corresponding offsets to expenses and ran an analysis, assuming a full 6.6% decrease to our hospitals' Medicare reimbursements. Under this scenario, our acute care hospitals' tenants EBITDA coverage ratios would decline approximately 80 basis points from the current 5.36 times to 4.56 times.

Further, it's important to note that our hospital operators are among the best in the business at managing these facilities in order to meet the increasing demand and changes in the healthcare field. An excellent example of this is the transformation Prime Healthcare achieved at our Paradise Valley facility in California.

This was recently reported on in the San Diego Union Tribune. If you go to our website, you will see a link to that article, which discusses the positive steps taken in greater detail. But in a nutshell, Prime was able in just two years to take a hospital that was operating in the red by a non-profit operator and put the facility well in the black while regaining compliance with the a regulatory agency such as Medicare and Medical.

Prime did this by reducing operating costs, adding much needed capital and equipment upgrades while employing strategies aimed at providing efficient patient care. For those of you that attended our property tour during this last year's NAREIT Annual Convention, you were able to see this facility for yourselves. Also just recently, two of our Prime hospitals, Desert Valley Hospital and West Anaheim Medical Center, were named as national award winners in the Thomson Reuters Top 100 Hospitals for 2008.

Now a brief update on specific assets, you'll recall that we have not included any revenue in our 2009 guidance from our facility in Bucks County or the two former HPA facilities in Houston. Despite that, we continue to be optimistic about the prospect of either selling or releasing these facilities during 2009. We continue to make good progress towards both of these objectives, and we'll continue to update you at the appropriate time.

Also in the early part of the second quarter of 2009, we terminated and re-leased one of our former Gulf States facilities to a new tenant and terminated the lease on the other facility where we already have a new tenant prepared to take over operations as soon as practical. During this transition, the former tenant continues to operate the hospital.

With that, I will ask Steve to walk you through the financial results of our first quarter. Steve?

Thank you, Ed. Good morning, everyone. As is usual for us, I'll go through the highlights of our financial results for the first quarter of 2009, and then we'll open up the call to your questions. This morning, we reported first quarter, normalized funds from operations of approximately $17.5 million, or $0.23 per diluted share. This is an increase of 14.3% compared with the $15.3 million, or $0.29 per diluted share, for the first quarter of 2008. Adjusted FFO for the first quarter of 2009 was $17.9 million, also $0.23 per diluted share, and an increase of 11.4% compared to last year's $16.1 million, or $0.29 per diluted share.

Normalized FFO and AFFO for the quarter -- first quarter of 2009 exclude $560,000 in interest expense related to the adoption of a new accounting pronouncement concerning convertible debt, and another approximately $333,000 related to the adoption of a new accounting pronouncement concerning participating securities.

Adoption of these pronouncements has no effect on the amount of interest or principal payments made to the note holders or dividends paid related to restricted ship stock. There is no effect on cash at all. Both of these changes are probably familiar to most of you, so I'll not go into further detail unless there are questions later. I should point out though that we have, as have all companies, restated our 2008 results for the same changes.

Per-share amounts were also affected by an increase in the weighted average diluted common shares outstanding to 76.4 million for the quarter ended March 31, 2009, from 53 million (sic - see press release) for the same quarter in 2008. This increase, of course, is the result of the common share offerings that we completed in March of 2008 and January of this year. Finally, net income for the first quarter of 2009 was approximately $10.7 million, or $0.14 per share, which compares to $10.9 million, or $0.21 per share, for the year-ago period.

Now, let's turn to our capital structure and liquidity sources. Let me give you a brief balance sheet summary, then I'll reiterate our current outlook regarding our future capital strategies. As of March 31, we had approximately $574 million in borrowings. That's down from about $642 million at year-end. This total includes fixed rate debt of $354 million with a weighted average rate of approximately 7.4% and variable rate debt of $220 million with a weighted average rate today of approximately 2.6%.

At March 31st, we had approximately $11.2 million in cash and approximately $71 million available under our revolving credit facilities. We have no meaningful maturities until November 2010 when a $30 million term loan is due. Upon repayment of that facility, which we may prepay at any time without penalty, approximately $340 million in healthcare real estate will become unencumbered. One of our revolvers is scheduled to mature in 2010 also, but we may extend that through 2011 for a nominal fee. That facility currently has a balance of approximately $93 million.

Also in 2011, November of 2011, our [0.06%] and [0.08%] exchangeable notes become due with a total amount of approximately $138 million. We have unfunded commitments to complete certain expansion and refurbishment projects within our existing portfolio that total about $2.5 million. We have no commitments to acquire or develop any new facilities. Given the current liquidity that I've just described and the unencumbered assets that become available in -- when we pay the $30 million loan that I mentioned, we're confident that we will have attractive alternatives during the next 2.5 years to satisfy our debt maturities at the time.

Having said that and to reiterate what Ed just said, we continue to evaluate potential opportunities to selectively dispose of or otherwise refinance selected assets. There is interest from third-party investors as well as from operators that may have access to financing such as HUD guaranteed debt. We have no definitive agreements for any such transactions, but we continue to be encouraged that some real estate investors and lenders are becoming more active. Along those lines and as we communicated last quarter, until there is greater clarity in both the credit markets and with potential property sales in general, it is unlikely that we will commit to any significant uses of our available capital.

Turning to future operations and our estimate of what our existing portfolio and operations are expected to produce, those who are familiar with us know that our practice is to provide estimates of annualize FFO run rates based on our in-place portfolio. We last updated this in January with an estimate of a range between $0.88 and $0.92 per share. We are not changing that estimate.

Let me reiterate some of the more important assumptions in that estimate. Our diluted shares outstanding today is approximately 78.5 million. We are assuming no revenue from the River Oaks campuses in Houston. We are assuming no revenue from Bucks County in Philadelphia, and we assume no revenue in 2009 from our interest in the Shasta hospital operations.

We also assume no significant changes in our debt balances and a current LIBOR reference of 0.5%. That's the 30-day rate, and we pay a weighted average of approximately 175 to 200 basis points over that rate on our variable rate debt. Further assumptions include quarterly operating expenses similar to what we incurred in the first quarter.

And that concludes our prepared remarks for today and with that, I'll turn the call back over to the operator to queue your questions. Operator?

(Operator Instructions).

Our first question comes from the line of Jerry Doctrow of Stifel Nicolaus. Please proceed.

Hi, thanks. Not a lot, it was fairly straightforward. I don't know if there's any more color you want to give us on sort of Bucks and River Oaks. That's really my key focus, and then I've got one follow-up.

Jerry, on both of those you could imagine why we -- we're not going to get into a detailed blow by blow of the negotiations of those facilities at this point other than to reiterate what I said in the prepared remarks. We are very pleased with where we are in the situation with all three of those facilities.

Okay.

And we will update at the appropriate time.

And I think you -- I think the way I heard you, Ed, was you had talked about some re-leasing. Is it still potential sales as well as re-leasing options potentially out there?

Yes. As we've said from the beginning on lease facilities, it will be a -- on all of them, it will be a combination of both. Some of them will be sales, and some of them will be re-leases.

Okay. And then, just one issue and I haven't honestly gone to look at proxies and stuff on this issue, but how are you all -- or the Board really dealing with comp these days? I mean, I guess I'm really trying to think about performance comp and that kind of issue.

Jerry, the exact performance measures were detailed in the Proxy Statement. I think the important thing to note is the total compensation for all of the executives, approximately 70% of it is performance-based with only 30% of it being fixed. So, there -- it is very dependent on the performance of various metrics, including FFO, liquidity, AFFO, tenant concentration, among other things.

Okay. All right, thanks.

Our next question comes from the line of Steve Swett of KBW. Please proceed.

Good morning, Ed and Steve.

Good morning, Steve.

Hey, a couple of things. On the two assets that you're looking at re-leasing or selling, would lease -- re-leasing in today's environment require more capital, just given tenants' own access to capital issues?

Yes and no, Steve, and keep -- remember that it's actually three separate campuses. The facility in Houston is actually two distinct campuses, so it'll be three separate transactions. And if it does require any additional capital investment, it will be very minimal.

And I -- most of the conversation on other calls about selling focuses on buyers looking at opportunities where sellers are more distressed, so would it be a fair assumption that if you're looking to sell, it's only because you can't find an opportunity to re-lease?

No, not at all. With the opportunities that we've discussed for the last several quarters about the debt maturities in 2011, it does -- some of the sales from our standpoint are very strategic in nature.

Okay. And Steve, you mentioned the unencumbered assets once you pay off that $30 million at say -- I think you said $320 million. In today's market, what would be kind of market pricing for secured debt on hospitals and what kind of LTVs?

Well, obviously -- tell you what our current facility, our primary facility is, and it's a borrowing-based facility. It is secured, and we get a 50% advance rate on the borrowing base. Today, as I mentioned, we're paying 175 to 200 over LIBOR on that facility, and we've not had any formal discussions with the lending group, although obviously we maintain contact with them and we monitor the market. And based on that, we expect that if we were to re-syndicate that facility, everything else being equal, we would probably go from 200 to 300, possibly as much as 400 over in today's market.

Okay. And then last question, Ed, I think this may be the first quarter that you haven't updated us on the Monroe situation. I imagine that is now fully ramping, and do you just have a couple of comments on how that's doing?

It's doing well, Steve. It had a slight decline in the first quarter over the fourth quarter. That was primarily due to the departure of two orthopedic surgeons, but the facility continues to have positive EBITDA rent coverage, very positive EBITDA rent coverage.

Okay, thanks.

Our next question comes from the line of Michael Mueller of JPMorgan. Please proceed.

Hi, this is [Mike Lewis] on Mike's line. Given the first quarter result and you're running at the high end of the guidance range that you gave, what are you looking at that can maybe pull you down to the $0.88 versus the $0.92?

Generally, Mike, the things that are in the press release and in my prepared statements, interest rates could move against us. Unexpected property operating expenses, you'll note that we had about $900,000 plus in that this quarter, other unexpected expenses and just the general things that could go wrong.

We're very confident with the -- as Ed has mentioned, with the strength of the portfolio, have no issues that we're anticipating. And I will point out, we've done this every quarter, that we're not including in our estimate the cost of legal. We're still defending the case down in Houston, and there's obviously no assurance to -- of how that will go, positive or negative.

Okay. I actually was going to get to that question. I know you disclosed the self lawsuit in the 10-K, but could you give us a little more color on the situation and why you think the Company is in the right and protected?

We're probably going to have to limit our comments to what we did disclose in the 10-K, and I'm sure you understand that there are reasons of privilege that we need to protect. We believe we have very, very strong defenses. We continue to believe that if it goes to trial we will prevail at trial, and we do not see any merit in the claims at all.

Okay. And then just lastly, have you considered buying back converts at all?

We consider probably everything every day, and clearly when your converts are trading at a discount, that's the compelling arithmetic. On the other hand, it's been our position for over six months now that our job for the foreseeable future is to protect the asset value of our assets and the strength of the balance sheet, and so that continues to be our priority. It is not to deplete the liquidity we have now for any type of investment.

Okay, thank you.

(Operator Instructions).

Our next question comes from the line of Karin Ford of KeyBanc Capital Markets. Please proceed.

Hi. This is [Austin Worschman] here with Karin Ford. I believe you guys last stated on the River Oaks facility that you were receiving interest at or above the total investment that you had made. Are you still seeing that type of pricing for these types of assets?

Are you talking about on the potential re-leasing or sale of the facility?

For on the sale of the facility, yes.

Yes, absolutely.

Okay. And then moving to the Monroe and Bucks, would MPW still consider a participating interest in those properties?

Yes.

Yes.

And then just lastly regarding capital, what order would you place in rating secured financing, asset sales and then potentially revisiting the equity markets?

Well, we're very fortunate, we believe, and it's not just fortunate, it's due to a great deal of planning, that we have all of those alternatives. And unless one could set up all of the different assumptions, what -- at what point we could sell stock at what price, and what are the terms of any new financing, and what are we getting for property sales, we can't sequence that right now. But all of that kind of goes into the mix, and we evaluate that constantly.

Okay, thank you very much.

And we have no more questions in the queue. I'd like to turn the call over to Mr. Ed Aldag. Please proceed.

Thank you, operator, and thank all of you again for your interest in Medical Properties Trust. And as always, please don't hesitate to call Steve, myself, or Charles Lambert if you have any further questions after the call. Thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.